With a limited outlook for international climate negotiations, some hope can be found in a battle between the US and Europe over the regulation and taxation of airline emissions. An industry-level agreement could be a model for compromise on international climate policies.

A Boeing 787 takes off from George Bush Intercontinental Airport in Houston on Nov. 4, 2012. Op-ed contributor Rachel Brewster says 'the threat of EU taxes [on US airline emissions] may give the Obama administration the policy space necessary to design climate policy for the aviation industry as part of an international compromise that could receive Congressional support.'

Durham, N.C. — With a limited outlook for international climate negotiations, some hope can be found in a battle currently underway between the United States and Europe over the regulation of airline emissions. This is the first major international conflict over a specific climate policy – and it may be the catalyst necessary to get the European Union, the US, and China engaged in serious bargaining at an industry level.

The fight is between the EU and several other countries, including the US and China, regarding carbon taxes on airlines. The EU has a cap-and-trade system for greenhouse gas regulation, the European Trading System (ETS), which requires European industries that emit greenhouse gases to buy “credits” sufficient to cover their emissions. This program includes European airlines, which must purchase credits for their airline fleet’s emissions on intra-European and international flights.

Starting January 2012, the EU extended this tax to foreign airlines for the segment of the trip landing in any European airport. The issue is now coming to a head because the emission credits from foreign airlines are due in April 2013. The penalty for failing to pay is 100 euros per credit and an obligation to make up the emissions credits deficit the following year.

The EU attempt to regulate incoming airline emissions has been extremely controversial internationally. In August 2012, 17 countries met, including China, India, Japan, South Africa, and the US, and issued a statement opposing the inclusion of foreign airlines in Europe’s cap-and-trade system. India and China have announced that their airlines will boycott the scheme as well.

At the end of November, the US raised the stakes again by passing legislation that could forbid American companies from complying with the EU law. The EU Emissions Trading Scheme Prohibition Act, which passed with the support of the airline industry, is designed to shield American companies from EU emissions tax liability.

It directs the secretary of Transportation to determine whether prohibiting domestic airlines from participating in the European system is in the public interest. If it is not, then US law will ban domestic airlines from paying any taxes under Europe’s cap-and-trade rules.

However, the legislation does not permit federal agencies to reimburse airlines for penalties incurred by their refusal to pay the EU’s tax, so airlines may be stuck between an EU obligation to pay a tax and US obligation not to.

The US has passed such prohibitive legislation before, such as laws banning engagement with apartheid South Africa and with Middle Eastern states participating in the boycott of Israeli goods and companies, but it is a rare and provocative move. The US has never previously applied such rules to countries seeking to address global environmental concerns.

A transnational fight over climate change legislation might be a positive development, however, particularly if it brings parties to the bargaining table and provides governments with a reason to move forward with some multilateral regulation. The EU appears receptive to the idea of such a compromise.

In part because of the US legislation, the European Commission – the executive arm of the EU – has proposed suspending the taxes foreign airlines owe for 2012 and instead negotiating a global solution. The European Parliament has not yet voted to adopt the suspension, but the European Commission could choose not to enforce the law for 2012. Both the US and the EU have agreed to start negotiations at the International Civil Aviation Organization.

These negotiations have some prospects for success in regulating airline emissions globally. The EU extension of their emissions tax system to airlines provides some immediate economic consequences for US parties if the negotiations fail. And US and other foreign airlines cannot realistically cease service to European airports. Therefore all parties have some incentive to reach a compromise in the near future.

Domestically, the threat of EU taxes may give the Obama administration the policy space necessary to design climate policy for the aviation industry as part of an international compromise that could receive congressional support. Moreover, if the US and EU agreed on the terms of a compromise, this joint action would be hard for the rest of the world to resist. China and other states could lose access to European and American airports if they don’t agree to a compromise involving similar regulations.

An airline industry-level agreement on emissions is not a comprehensive solution to the threats posed by climate change, but it may provide a new model for international negotiations on the topic: unilateral state action followed by sector-specific talks. This model requires real leadership on climate change, a mantel the EU is currently bearing, and avoids the sweeping model of many countries bargaining over hundreds of climate issues (such as at the Doha climate talks).

Rachel Brewster is professor of law at Duke University Law School and co-director of Duke’s Center for International and Comparative Law.